Financial Reform Bill is NOT Reform

There were no last minute sudden-death surprises in the reconciled financial reform bill that emerged in the early hours of Friday morning. It remains an opus of technical modifications, that brings no meaningful structural reform to the financial landscape.

The stock prices of Wall Street banks certainly didn't rise in response, because banks feared their business models would be hampered with. At the end of the day, the field remains controlled by an elite group of mega-influential, complex, trading-oriented institutions that can hold consumer deposits and retain federal support. The conflicting practices of putting capital (whatever the limits on it turn out to be ) behind speculative vs.  productive means will not be split up ala Glass Steagall. 

The notion of banks having to create a separate subsidiary for some derivatives (which are still TBD) is a license to shove more crap off-book, not to reduce risk; it's a different version of the SPV's that hid true financial states from Enron to Citigroup.  

The Volcker rule in any form was only going to contain a minute portion of overall trading activity at best, and not the customer-driven, market-maker, hedging activity that comprises most of the systemic risk, and lies at the route of this, and any future, crisis. 

The likelihood that the new ten-person oversight council, headed by Fed Chairman, Ben Bernanke and Treasury Secretary, Tim Geithner whose 'day-jobs' entailed propping up the banks and maintaining their status quo mode of operations, will prevent future crises, when neither of these men care to even address the current situation of rising trading profits over lending activities, is one of misplaced optimism at best.  The fact that the Fed retains uber-regulatory authority legitimizes the trillions of dollars it made available to fund bad bank decisions. These banks were indeed made larger, and more systemically dangerous, by the regulators that subsidized them as they teetered on the brink of failure - including Bernanke and Geithner. 

This will not end well. There was a shot to be made for real reform, but it has failed like a kick outside the goal posts at any World Cup game. 

Comments

[djoki@earthlink.net]

Thank you for starting to post on your blog again. I am reading more and more about economics-both national and international and your insights are very helpful. I began teaching High School Econ this year so your writings are helpful in a professional way also.

[Abram]

You did not read the bill at all. Your soul purpose is to sell your books. You do not seem to take anything into consideration.How much money you made by bashing the ten people that you are accusing of? This is a good start. We will succeed despite your attack